I was pleased to see the Queensland Government note, in its submission (available on the submissions page) to the Federal Senate Inquiry into Affordable Housing in Australia, that “local government must be more responsive and flexible if improved housing affordability is to be achieved.” However, I would have really liked it to have specifically identified heritage protection as a major constraint on housing supply in Brisbane. As discussed in a post by Brad Rogers (Old Queenslanders in a New City), protection of old Queenslanders in Brisbane’s older suburbs limits the population density of these suburbs, which could house a lot more people – and provide more affordable housing options – if lots containing old Queenslanders were re-developed to contain townhouses or apartment blocks.
That said, at least the Government’s submission has started a new discussion about housing supply issues in Queensland. Figures on Queensland’s low rate of home ownership contained in the Government’s submission prompted a Brisbane Times article this morning (Queensland home ownership falling) and Steve Austin’s interview of Urban Development Institute of Australia (UDIA) President Brett Gillan this morning on 612 ABC Brisbane (Queenslanders balk at buying first home). The reported figures relate to outright home ownership, but total home ownership rates in Queensland are also relatively low – i.e. if one counts houses owned with a mortgage as well, as in the chart below from the ABS (copied from Home ownership in Local Government Areas).
Home ownership rates
Let’s hope the discussion continues and will take on the issues of heritage protection as well as the conservative attitude some Councils have towards the development of new land, whether that be due to concerns over the impacts on the environment or property prices of existing residents.
Queensland Economy Watch 
Gene
A useful post, but only a pass conceded. I wonder how much of the affordability issue is really driven by consumer choice and the actions of the development sector?
Land constraints
You are right to identify constraints on land availability as one of the drivers of house price increases and impacts on affordability. There is plenty of research to show that increasing land prices have been the biggest contributor to house price increases in the past couple of decades. Infill and subdivision (primarily in Brisbane) will only partially alleviate that problem at best. However, you are wrong to infer this is due to some sort of failure of policy or planning. Industry tends to overstate the supply constraints on short to medium term supply of greenfield development. In SEQ I’ve heard figures of 3 to 5 years of supply has already been approved by councils (i.e. the regulatory constraint has been overcome). The limited supply on the actual market is often due to developers sequencing the release of land onto the market to maximise yields (and delay expenditure of the actual development). This is a profit maximisation position for developers, but perhaps not a socially optimal one if affordability is the objective. My point is that it is probably wrong to lay the blame of rising land prices on the local government sector.
Environmental and heritage regulations are not to blame
You, and most of the development sector, are wrong to lay the blame for housing affordability on environmental regulations. Key requirements such as water sensitive urban design account for about 1-2% of the cost of an average new home (or about the same cost as 2-4 square meters of a new home). Other infrastructure charges relate to assets (e.g. drainage, roads etc) that actually add value to a house anyway. Is it economically optimal to scrap these regulations or charges and allow for a major externality to occur, or development that is more akin to 1950s Brisbane?
Relaxing heritage controls to enable infill in Brisbane may not be that attractive either. Much of the infrastructure (particularly water, sewerage and the urban road network) in the inner suburbs cannot cope with massive increases in density anyway. Infrastructure duplication and augmentation costs in inner city locations are often much more expansive than greenfield developments. My point is that efficiency gains from infill may be overstated.
If you really want to tackle affordability of new houses, build smaller…..
ABS data shows that the average new house build in SEQ is 250 square metres. 25 years ago, it was 175 square metres. All this while the number of persons per dwelling has dropped. New houses now also have higher quality fixtures and fittings, additional bathrooms etc etc. The average size of new house and the level of fitout is a consumer choice, not a market failure deserving of a policy response. Besides, only about 15% of the new housing stock is sold to first time home owners anyway, and the ratio of a the price of a new house to average wages has actually fallen in the past 10 years. My point is that, if a new home builder is concerned about affordability, the logical thing to do is build a smaller house.
…or move further out….
There is also the option of moving further out from the CBD. There are plenty of houses in places like Ipswich that are much cheaper than in Brisbane. Many people on lower wages (unskilled, manufacturing etc.) also work out there anyway. In effect, the market sorts out the affordability problem anyway.
However, there remains a problem where lower paid workers must work in the city. Here they have a problem that housing in Brisbane is not affordable, or they face a very long commute. Something positive the public service could do would be to gradually move many of the generic (and often lower paid) administrative functions such as HR, payroll etc out to areas where people that do that sort of work actually live. If the private sector can have a call centre/accounts department/IT in India, why can’t the Queensland Government have them in Ipswich or Logan etc?
Thanks for your comment, Jim. Lots for me to think about and address in a future post. I’ve heard that point about inner city infrastructure not being able to support higher densities. It would be nice to do a cost-benefit analysis to see if the benefits of higher density (e.g. reduced transport times and costs and higher productivity) would outweigh the costs of any augmentations. I suspect they would, but that’s just a hunch.
Removal of Heritage protection may increase housing affordability but it would reduce liveability and character which are some of the reasons people are attracted to pay high prices for living in these areas. liveability and character are issues which economists have difficulty in understanding and must be factored in or we will all be living in a developers wasteland (eg Gold Coast)
Thanks for the comment, Mark. I agree liveability and character are important, but surely we can design modern communities that are liveable and will develop character over time. I’m unsure why we need to protect old houses to obtain these outcomes.
I cannot see how a market solution that includes removing heritage listing and allowing intensity would result in a solution to the supposed “affordability crisis”.
Most heritage buildings tend to be on prime sites (read expensive land). So even a cheap build on expensive land is unlikely to be affordable in the true sense of the word. Furthermore, a developers’ profit is not maximised by putting a cheap build on an expensive block of land.
Can anyone name one redevelopment in the inner city that has resulted in a cheap build in the past 10-20 years? I can’t. Simply, it does not make commercial sense. The market left to its own devices delivers new one bedroom flats in Toowong from $380,000 because that is the profit maximising thing to do. On a minimum deposit (the best most on low incomes can achieve), the mortgage payments alone are over $20,000 per year. Clearly this is not the market delivering “affordable housing” for people on minimum wages.
Most “affordable housing” development in the inner cities in Australia in recent years has been delivered via regulators deliberately distorting the development market (e.g. where an approval for a development is subject to a particular % of the stock going to public housing, or cheaper/smaller blocks and buildings).
Drawing a causal link between heritage listing and a lack of actual “housing affordability” is probably tenuous at best, and possibly complete economic bollocks at worst.
Jim I think you are letting your love of old things get in the way of your economics assessment. It is obvious that if you limit the quantity of homes in any area the price will go up. The Council has a monopoly on supply of homes and other developments. Like any other monopoly the Council constrain supply to capture rents in the form of rates. One strong incentive for a Council to hold up supply is to win votes by raising the value of the homes of the people who live in the Council area. In our conversations with Economic Development managers of Councils in SEQ they openly admit to limiting supply to hold up the house price of the area.
The table below clearly shows there is benefits to allowing more units to be developed in Brisbane.
House Units Reduced Cost % Reduced
Buy Rent/wk Buy Rent/wk Buy Rent/wk Buy Rent/wk
New Farm $1,185,250 $750 $509,950 $450 ($675,300) ($300) -57% -40%
West End $903,000 $575 $525,000 $495 ($378,000) ($80) -42% -14%
Sorry table in my comment did not work.
The median house price in New Farm is $675,300 (57%) more than the median unit price and the median rent is $300 more for a house. The median house price in West End is only $378,000 (42%) more than the median unit price.
Brad
I’m not letting a love of old things get the better of me. Give me a funky 60s place over a pre-WW2 home any day. And I don’t disagree that constraints in land supply in a particular area will push up prices.
I just think a lot of the commentators (and some industry advocates) are completely overstating the contribution that environmental and heritage regulations make to increases in house prices. Surely the introduction of water sensitive urban design and a few other things (that cost a total of about $6,000 per dwelling) cannot explain the $200,000 increase in median house prices in Brisbane in the past 10-12 years? Am I missing something? The peer-reviewed research all shows the main drivers of house price increases are increasing land prices (a function of population growth and demand) and consumer choices (bigger, more well equipped new dwellings).
Are the commentators and development industry advocates just misinformed, or are they delibetately running spurious arguments in order to influence environmental and heritage policy for their own rent-seeking purposes? I don’t know. But neither situation is a sound basis for good public policy.
Transferable Plot ratio is the way to maintain heritage and not disadvantage land owners/housing affordability. Implementation allows greater density (greater housing affordability) without removing heritage. Both Adelaide and Perth (thanks to Paul Ritter) have transferable plot ratio provisions in their town plans. Some how Queensland does not have the ability to implement it – is it to do with SPA? (EG un like every other state in Australia QLD’s planning legislation does not allow prohibition and everything is challengeable in the courts)?
Time Qld got with the program !!!!!!
Thanks for the comment, Mark. I hadn’t heard about transferable plot ratio before. Looks like a good idea.